I jumped into a discussion on a photo forum about a particular way of washing prints. Several people chimed in and said that it did work, but it wasted too much water, the implication being that he shouldn’t use it. I piped in and said what I thought was a pretty obvious fact, water is not scarce everywhere. It certainly is here in Yemen, but it isn’t in the entirety of the American NE. If the residents of Buffalo cut back water usage by 30%, there would be that much more water that is not being used in that area. They have an unbelievable amount of fresh water available, much more than can possibly be used. So if someone wanted to think “conservation first” in that area, they would indeed use less water, but to no effect at all. In the mean time, he might have forgone the use of a swimming pool, golf course, or the washing of fiber based paper and it wouldn’t have helped anyone…
I did mention the fact that if one did want to conserve water, all you had to do was raise the price. One guy responded and told me that it was false, that you can’t change consumer’s consumption by raising the price. What? Price doesn’t matter? He then told me that consumption has continued to rise despite the fact that prices are much higher now. Groan… Yes, people charge more money for things now, but the value of the money is considerably less now. In what economists call “real” terms, the prices of almost everything has continued to drop. It is the low “real” values that make people want to consume so much. He also told me that raising prices doesn’t affect the total amount used, it just redistributes it to people with more money. OK, so the people with more money didn’t buy it when the price was lower? If they continue to buy when the price rises and the “poor” people don’t, well, that’s a reduction of use isn’t it? Isn’t that the idea with conservation?
“But it isn’t fair..” Aha! That’s usually the real reason that people object to price rationing. It is true, at the margin, that poorer people are more likely to give up using the commodity as it gets more expensive. Once again, it is a reduction of use, so that is a point in it’s favor. In places like the US, I can’t think of a commonly used commodity that is beyond the price of anyone. If something were getting so expensive that very few people could afford it, it’s probably for the best, that thing sounds incredibly scarce.
People often times overlook two very important aspects of price rationing. By raising the price, people are inspired to make more of that commodity available, and by raising the price, people look for alternatives. Gasoline/oil are a prime example of alternatives coming to the fore. As the price rises, other alternatives become more and more attractive. But there isn’t an alternative to fresh water! That’s where that first idea comes into play. If prices of water are allowed to rise in Arizona, it may eventually make sense for there to be a pipeline from one of the great lakes down to the Southwest, as long as someone could make money off of it, it’s possible. There are any number of other methods as well, desalinization plants, trucking water in, etc. The key is that without higher prices, none of them are “worth” it. Higher prices will eventually make alternatives to the product available and/or a new way of getting that product to the people that value it most. Even if you think it’s “unfair,” this process is essential to driving growth and conservation.
Prices matter, demand curves slope downwards, conservation at all times doesn’t always make sense. If conservation is the goal, some people will have to go without, or least without as much as they used to. We know that the vast majority of people will not alter their habits without some “pushing.” It’s far better to let them decide how much to cut back than it is for someone else to dictate to them how much they should use. Prices are great things, why are people so afraid of them?